Feb. 17 (Bloomberg) -- Australia & New Zealand Banking
Group Ltd. reported a 4.1 percent increase in underlying profit
in the first quarter, saying credit growth is unlikely to return
to pre-crisis levels in the “foreseeable future.”

Unaudited underlying post-tax profit adjusted for non-core
items in the three months to Dec. 31 was A$1.48 billion ($1.59
billion), the Melbourne-based bank said today in a statement,
without giving a year-earlier figure. It reported underlying
profit in the first quarter last year of A$1.4 billion.

Chief Executive Officer Mike Smith is among bank executives
fighting to maintain earnings as demand for mortgages tumbles to
the weakest since 1977. ANZ Bank this week announced plans to
slash about 1,000 jobs by Sept. 30, and on Feb. 10 raised its
standard variable mortgage rate independent of the central bank,
which left borrowing costs unchanged.

“Standard banking is performing OK given reasonably tough
market conditions,” said Victor German, a Sydney-based banking
analyst at Nomura Australia Ltd. who has a “neutral” rating on
ANZ Bank shares. “Funding conditions are expensive and the
opportunity to reprice have been limited until this quarter.”

Growth Curbed

“There will not be a return to the level of credit growth
that banks experienced pre-crisis for the foreseeable future,
particularly in our major domestic markets in Australia and in
New Zealand, as consumers reduce their gearing and businesses
pace investments,” Smith said in today’s statement.

Westpac, Australia’s second-largest bank, reported
yesterday first-quarter profit that was lower than a year
earlier as rising funding costs squeezed the profitability of
its lending. Unaudited cash earnings in the three months ended
Dec. 31 were A$1.5 billion.

Commonwealth, the nation’s largest bank, said Feb. 15 that
profit in the six months ended Dec. 31 climbed 19 percent to
A$3.62 billion from a year earlier, helped by fewer soured
loans. National Australia said Feb. 7 that its cash profit in
the three months ended Dec. 31 rose 7.7 percent as it increased
lending faster than rivals.

Rising Costs

The global banking environment has become “significantly
more challenging following the first phase of the global
financial crisis,” Smith said in the statement. “Bank funding
costs are continuing to rise as the deepening economic and
financial crisis in Europe causes dislocation and volatility in
global markets although prospects are brighter in the U.S.”

Australian banks may eliminate 7,000 jobs in the next two
years, seeking to reduce labor costs that account for 58 percent
of expenses, UBS AG said last month. ANZ Bank said Feb. 13 that
it will eliminate about 1,000 positions by Sept. 30.

ANZ Bank staff in Australia were told Feb. 13 of 492 roles
affected by the lender’s 1,000 in planned reductions.

Australia’s four-pillar banks, so named for a law that
prevents them from buying each other, are managing slower demand
for mortgages, which account for about 60 percent of all lending
in the nation. Borrowing slumped after the central bank boosted
interest rates seven times from October 2009 to November 2010.
Policy makers cut the key rate by a quarter percentage point in
November and December to 4.25 percent, an unexpectedly held the
rate unchanged at this month’s meeting.

Mortgage Lending

Credit to home buyers rose 5.4 percent in December from a
year earlier, the smallest annual increase since 1977, when
central bank data begins. The gain is also a third of the
average monthly pace recorded in the decade to December 2009.

ANZ Bank’s mortgage lending rose 2.4 percent in the quarter
from the previous three months, 1.5 times system growth and
deposits gained 3.6 percent, or 1.3 times system.

The bank’s net interest margin, a measure of profitability
of its lending, narrowed about 1 basis point from the previous
six months. That figure doesn’t include ANZ Bank’s global
markets business. At the bank’s Australian business, the net
interest margin narrowed 9 basis points “due to higher funding
and deposit growth,” it said.

ANZ Bank said its term wholesale funding program for 2012
is “in line with 2011” at around A$20 billion and the lender
is ahead of schedule have raised about A$9 billion year-to-date.